Analyst: AMD may spin off fab plants this month

A Wall Street analyst is predicting that Advanced Micro Devices is preparing to spin off its manufacturing operations into a separate company and may announce the plan as soon as September 15.

John Lau, senior semiconductor analyst and managing director of Jefferies & Co., told Computerworld this week that AMD is looking to spin off its fabrication plants into a separate company funded by a Middle East consortium. The company, according to Lau, will handle AMD's manufacturing but will also be free to build chips for other companies.

AMD may maintain a minority interest in the new company, added Lau.

The analyst also noted that by splitting off its manufacturing operations, AMD could improve its financial standing.

The chipmaker struggled during 2007, taking it on the chin with delayed product releases, financial woes and a slip in market and mind share. This year AMD has regained its footing somewhat, as the company shipped a slew of new products. But the looming need to upgrade its fab facilities carries a hefty price tag that would add a major financial burden.

"We believe that given the current cash position of the company and the capital expenditures necessary to upgrade their current fabs, this will create a hardship for the company," said Lau. "The company has [been] on the record indicating they will pursue a fab-light strategy. We have been looking for more details of this strategy for quite some time now and our contacts in Asia indicate this effort is near finalization. We believe that the spin out will result in divestiture of their wafer fabrication capabilities but they will retain their packaging and test operations."

Gary Silcott, an AMD spokesman, said the company will not respond to rumors.

"We've been clear that when we're ready to talk about further details of [AMD's] asset smart [strategy], we will do so," he said. "We hope to talk further about it by the end of the year."

Earlier this year, AMD hinted that it may change its asset strategy to lighten what Wall Street analysts have said is a heavy financial burden on the company. "At a high level, asset smart is our broader strategy to take a close look at how we're doing our wafer manufacturing and our chip manufacturing, the research and development," Silcott said today. He added that the company is evaluating "everything associated" with how they produce products, what they should be doing themselves and what they should be doing jointly with others.

And a series of executive shake-ups in recent months have had analysts and industry watchers expecting a restructuring. In April, it was announced that Senior Vice President and Chief Technology Officer Phil Hester resigned to search for new opportunities. The next month, AMD shuffled its top executives and created a new group to oversee the company's product roadmap.

Then in July, the company named Dirk Meyer to replace Hector Ruiz as CEO - just as AMD was reporting its seventh consecutive quarterly loss.

All this executive movement has led to rampant speculation that a major change is afoot for AMD. And splitting up the company would fit that bill.